Tobacco
Settlement Agreement Fund Oversight Committee

Minutes

<MeetMDY1>December 12, 2006

The<MeetNo2>meeting of the Tobacco Settlement
Agreement Fund Oversight Committee was held on<Day>Tuesday,<MeetMDY2>December
12, 2006, at<MeetTime>1:00 PM, in<Room>Room 125 of the Capitol Annex. Senator
Vernie McGaha, Chair, called the meeting to order, and the secretary called the
roll.

Minutes of the November 14 meeting were approved, without
objection, by a voice vote upon a motion by Sen. Boswell and seconded by Rep.
McKee.

Following approval of the minutes, the committee approved
the report of the 2006 Tobacco Settlement Agreement Fund Oversight Committee by
voice vote on a motion by Sen. Pendleton and seconded by Rep. McKee. The
presiding chair, Senator McGaha, indicated the report would be forwarded to the
Legislative Research Commission.

Chairman McGaha next asked Mr. Keith Rogers and Mr. Brian
Furnish, executive director and deputy director respectively of the Governor’s
Office of Agricultural Policy (GOAP), to present their monthly report of state
and county projects reviewed at the previous Agricultural Development Board
(ADB) meeting.

Mr. Rogers indicated there were few model and non-model
projects to report because the ADB spent much of its last meeting reviewing and
acting on policies. Mr. Rogers reviewed three projects receiving formal
Agricultural Development Board approval -- the Clinton County Farm Bureau,
Carroll County Agriculture Development Fund, and Estill County Cattlemen’s
Association. Committee members raised no questions about the projects.

Next, Mr. Rogers turned to some of the policy issues
addressed at the earlier ADB meeting, starting with the Kentucky Center for
Agricultural Development and Entrepreneurship.

One of the activities the KCADE funded was the Kentucky
Entrepreneurial Coaches Institute, which graduated its second and final class
in November. The program was geared toward building entrepreneurial capacity in
19 northeastern Kentucky counties.

Responding to Representative McKee, Mr. Rogers said they
anticipated another application from the program next year. But he said the
program, if funded, would operate in southcentral/southeast Kentucky. He told
Representative McKee that program graduates had committed to a specific number
of hours in their communities. He said he had seen some ADB projects evolve out
of the program. Also, some graduates had sought public office in their
communities.

Next, Mr. Rogers turned to an board’s energy policy
statement. According to the policy, the ADB would continue providing seed money
to biofuel endeavors, but would require that farmers have substantial ownership
and financial investment in such projects. He also discussed the board’s
interest in fuel production from biomass.

In discussion initiated by Representative Hoffman, Mr.
Rogers reviewed the merits of the various plants and materials that could be
used to produce biomass. They said the U.S. Department of Energy had identified
Kentucky as a central location with biomass possibilities. As for one of the
potential biomass plants, switch grass was difficult to establish, but could
have potential, they said. They also said wood chips had potential as a biomass
raw material.

Senator Boswell asked about the cost-efficiencies of
producing biofuels. Mr. Rogers responded that it took one unit of energy to
produce 1.34 units of energy from corn, while cellulose converted one unit to
2.62-5 units of energy depending on the feed stock. Mr. Furnish said large oil
companies were experimenting with cellulose because it was not consumed by
humans.

Following that discussion, Mr. Rogers reviewed other
policies taken up by the Agricultural Development Board.

In terms of county fund investment policies, the board
directed that county councils update their comprehensive plans. Mr. Rogers said
they expected to have some guidelines regarding those updates in January.

Mr. Rogers then reviewed some of the model, menu, and pilot
program policy changes. He noted the board directed that, beginning in January,
producers must have their state premise identification before funds would be
dispersed to applicants in all model programs. He said the Department of
Agriculture requested such a policy.

Next, he discussed some new compliance policies to encourage
fund administrators to follow guidelines and legal agreements. According to Mr.
Rogers, there would be two categories – “watch list status” and “probation
status” that would allow GOAP staff to enforce guidelines for administrators.

Mr. Rogers also went over plans for the agri-tourism
competitive awards program and farmers’ market competitive program.

Following that discussion, Senator Boswell asked about the
status of the defunct Western Kentucky Growers Cooperative. Mr. Rogers said a
company had taken over the cooperative in a lease arrangement. He said they
would be selling some excess property that could not be declared state surplus.

Chairman McGaha next invited representatives of the Kentucky
Agency for Substance Abuse Policy (KY-ASAP) to appear before the committee.
Speaking to the panel were Laurie Dudgeon, Executive Director of the Office of
Drug Control Policy, and Mr. Allen Love, State KY-ASAP Coordinator.

Ms. Dudgeon presented a report which contained information
on board members and board meetings during 2006, a financial overview,
including local board expenditures, staffing, “hot spot” funding for areas at
risk for substance abuse, and a proposed strategic plan.

The KY-ASAP board had a full complement of members,
according to Ms. Dudgeon. She said the next meeting was planned for Thursday,
December 14. She said the board was supposed to meet every six months, but had
been meeting quarterly.

She then reviewed board activity, staffing, and finances.
One Committee member asked for more information on fund transfers totaling over
$3.2 million in FY 2003 and FY 2004. Mr. Love said they were still trying to
determine the history of the transfers. Ms. Dudgeon said that presumably, the
funds went to local boards.

Chairman McGaha verified that an aspect of Mr. Love’s work
would be to monitor the KY-ASAP finances.

Mr. Love indicated that local boards mostly receive $20,000
as start-up funds. He went on to explain to Representative Comer that local boards
do a needs assessment regarding what they perceive to be significant substance
abuse problems in their area. The witnesses mentioned such things as smoking
cessation efforts and anti-drug work.

They said some local boards were better positioned than others
in terms of supplemental funds from their communities. The pointed out to
Senator Boswell that some counties function under a multicounty umbrella.

As discussion progressed, the KY-ASAP representatives
discussed the concept of “hot spot” counties. Chairman McGaha asked if they
coordinated with other organizations such as Operation UNITE. Mr. Love said
they do. He said they make an effort to identify all entities involved in
combating substance abuse and working to attack the problem. Ms. Dudgeon said
some counties use the local KY-ASAP organization as a “springboard.”

Representative Arnold asked about the evaluation of
individual counties. As discussion continued, Chairman McGaha asked if the
organization was able to determine if there were positive outcomes from the
program. Mr. Love said they had encouraged their boards to be specific as to
usage of funds. He added that they would be looking at instituting outcome
measures to determine if funds were properly used.

The meeting ended with a resolution honoring Representative
Arnold in his retirement from the General Assembly. Several members praised the
representative for his many years of service. Representative Arnold said he had
enjoyed his years in the General Assembly. He mentioned his service on the
Agriculture and Natural Resources Committee and his co-sponsorship of House
Bill 611, which, among other things, created the Tobacco Settlement Agreement
Fund Oversight Committee.